Bill Schultheis Coffeehouse Portfolio: Allocations, Performance, and Returns Analysis
The Coffeehouse Portfolio from Bill Schultheis aims to diversify investments across stocks, REITs, and bonds.
The Schultheis Coffeehouse Portfolio strategy can be implemented with 9 ETFs. You do not need to pick individual stocks and bonds.
Accordingly to our backtests over the past 16 years, the Schultheis Coffeehouse Portfolio has the following performance metrics:
• Compound annual return (CAR): 5.97%;
• Standard deviation: 13.54%;
• Maximum drawdown (MDD): –38.39%;
• Sharpe ratio (with a risk-free rate of 3%): 0.22;
• CAR/MDD ratio: 0.16.
Who Is Bill Schultheis
Schultheis grew up on a wheat farm in eastern Washington, attended Washington State University, and graduated from Texas A&M University in 1982.
In 1998 Bill Schultheis created the Coffeehouse Investor in an effort to bring a simpler and smarter investment philosophy to individuals and corporations across the nation and around the world.
He has appeared regularly on Seattle’s PBS Serious Money program, is a guest contributor on NPR’s Morning Edition and wrote a syndicated investment column for eight years.
For 13 years, he worked with retail and institutional accounts for Smith Barney in Seattle, WA. For the past eight years he has been a principal and fee-only financial adviser, currently with Soundmark Wealth Management in Kirkland, WA.
When he’s not working, he can be found on the golf course, camping on Mt. Rainier, cooking in the kitchen, writing his next book, and enjoying the company of his wonderful family and friends.
What Is The Schultheis Coffeehouse Portfolio
The Schultheis Coffeehouse Portfolio consists of the following asset classes with their respective total weights:
| Asset class | Weight in the portfolio |
| Stocks | 50.00% |
| Bonds | 40.00% |
| REITs | 10.00% |
The more detailed allocation of the Schultheis Coffeehouse Portfolio assets with appropriate weights:
| Asset Allocation | Weight |
| Large Cap Blend Stocks | 10.00% |
| Small Cap Blend Stocks | 10.00% |
| Large Cap Value Stocks | 10.00% |
| Small Cap Value Stocks | 10.00% |
| REITs | 10.00% |
| International Stocks | 10.00% |
| Bonds | 40.00% |
Stocks In The Schultheis Coffeehouse Portfolio
Stocks are used as high-return securities that increase portfolio returns, but stocks are more risky and volatile than bonds. The Schultheis Coffeehouse Portfolio includes the following types of stocks:
- Large Cap Blend Stocks – US large-cap growth and value stocks that virtually replicate the benchmark S&P 500 stock index;
- Small Cap Blend Stocks – US small cap growth and value stocks. Such stocks have historically outperformed large-cap stocks;
- Large Cap Value Stocks – US large cap value stocks. Such stocks have historically outperformed growth stocks;
- Small Cap Value Stocks – US small cap value stocks These stocks have historically outperformed growth stocks and large cap stocks;
- International Stocks – international stocks allow you to increase diversification by reducing the overall correlation of the portfolio. International stocks are located on other continents (Europe, Asia, etc) and have low correlation with US stocks.
For stocks, we have picked these ETFs, which are well diversified, have high liquidity and a long performance history:
| Portfolio Sector | ETF Name | ETF Ticker |
| Large Cap Blend Stocks | SPDR S&P 500 ETF Trust | SPY |
| Small Cap blend Stocks | iShares Core S&P Small-Cap ETF | IJR |
| Large Cap Value Stocks | Vanguard Value Index Fund | VTV |
| Small Cap Value Stocks | iShares Russell 2000 Value ETF | IWN |
| International Stocks | iShares MSCI EAFE ETF | EFA |
REITs In The Schultheis Coffeehouse Portfolio
Real estate investment trust (REIT) stocks historically have a low correlation with the traditional stocks, such as S&P 500 stock index.
For REITs, we have picked these ETFs, which are well diversified, have high liquidity and a long performance history:
| Portfolio Sector | ETF Name | ETF Ticker |
| REITs | iShares U.S. Real Estate ETF | IYR |
Bonds In The Schultheis Coffeehouse Portfolio
Bonds are used in the portfolio as low-risk, low-volatility securities that reduce the portfolio’s return but also reduce the maximum drawdown. The Schultheis Coffeehouse Portfolio doesn’t specify bond types, so we included following types of bonds:
- Long–term Government Bonds (20%) – long-term US treasury bonds that are highly reliable;
- Corporate Bonds (10%) – short-term, medium-term and long-term corporate bonds that are more risky than government bonds but also have a higher yield;
- Emerging Market Bonds (10%) – government and corporate bonds of emerging markets, which have a higher yield and higher risk than bonds of developed markets.
For bonds, we have picked these ETFs, which are well diversified, have high liquidity and a long performance history:
| Portfolio Sector | ETF Name | ETF Ticker |
| Long-term Government Bonds | iShares 20+ Year Treasury Bond ETF | TLT |
| Corporate Bonds | iShares iBoxx $ Investment Grade Corporate Bond ETF | LQD |
| Emerging Markets Bonds | iShares J.P. Morgan USD Emerging Markets Bond ETF | EMB |
Backtesting Of The Schultheis Coffeehouse Portfolio
We backtested The Schultheis Coffeehouse Portfolio using a “buy and hold” strategy rebalancing at the beginning of each year. For backtesting, we used the ETFs we picked with the appropriate weights. Backtesting interval is from 2007 to 2023 and dividends are included.
Portfolio equity curve:
Portfolio underwater curve (drawdowns):
Portfolio monthly and annual returns:
| Year | Jan | Feb | Mar | Apr | May | Jun | Jul | Aug | Sep | Oct | Nov | Dec | Yr% |
| 2007 | 1.3% | -0.1% | 0.2% | 1.8% | 1.2% | -1.9% | -2.7% | 1.6% | 2.0% | 1.4% | -2.4% | -1.4% | 0.9% |
| 2008 | -2.0% | -1.9% | 0.8% | 2.5% | 0.3% | -5.4% | 0.5% | 1.7% | -5.2% | -14.8% | -0.7% | 10.3% | -14.8% |
| 2009 | -11.3% | -9.3% | 5.6% | 8.5% | 3.1% | 0.2% | 6.8% | 4.3% | 3.9% | -3.1% | 3.5% | 1.7% | 12.4% |
| 2010 | -1.5% | 2.1% | 4.3% | 2.9% | -4.1% | -1.5% | 4.9% | -0.4% | 4.4% | 1.3% | -1.0% | 3.5% | 15.5% |
| 2011 | 0.4% | 3.0% | 0.2% | 2.9% | 0.3% | -1.7% | -0.1% | -2.1% | -2.7% | 6.1% | -0.6% | 2.2% | 7.8% |
| 2012 | 3.4% | 1.5% | 0.8% | 0.7% | -2.6% | 3.1% | 1.8% | 1.3% | 1.0% | -0.5% | 0.6% | 1.3% | 13.2% |
| 2013 | 2.1% | 0.9% | 1.9% | 2.9% | -1.8% | -2.1% | 2.9% | -2.9% | 3.5% | 3.1% | 0.6% | 1.0% | 12.5% |
| 2014 | -0.4% | 3.3% | 0.8% | 0.8% | 2.0% | 1.4% | -1.6% | 3.2% | -3.2% | 3.5% | 1.5% | 0.7% | 12.4% |
| 2015 | 1.7% | 1.1% | 0.2% | -1.0% | -0.2% | -2.2% | 1.6% | -3.9% | -1.1% | 4.2% | 0.4% | -1.8% | -1.2% |
| 2016 | -2.1% | 0.7% | 5.2% | 0.7% | 0.9% | 2.8% | 3.1% | 0.1% | -0.2% | -3.0% | 0.8% | 2.2% | 11.5% |
| 2017 | 0.8% | 2.2% | -0.1% | 1.1% | 0.6% | 1.2% | 1.0% | 0.5% | 1.6% | 0.7% | 1.7% | 0.9% | 13.0% |
| 2018 | 0.8% | -3.9% | 0.7% | -0.2% | 2.1% | 0.4% | 1.8% | 1.4% | -1.1% | -5.4% | 1.7% | -4.3% | -6.2% |
| 2019 | 6.4% | 1.6% | 1.6% | 1.5% | -2.1% | 4.3% | 0.6% | 1.4% | 1.1% | 1.1% | 1.1% | 1.3% | 21.3% |
| 2020 | 0.6% | -3.7% | -10.7% | 6.7% | 2.4% | 1.8% | 3.9% | 0.9% | -1.9% | -1.4% | 8.8% | 2.9% | 9.1% |
| 2021 | -0.2% | 1.5% | 1.9% | 3.2% | 1.6% | 1.2% | 1.1% | 1.4% | -3.2% | 3.8% | -1.5% | 3.6% | 14.9% |
| 2022 | -4.4% | -2.0% | 0.1% | -7.2% | 0.2% | -6.4% | 6.1% | -4.2% | -8.8% | 4.3% | 6.7% | -3.8% | -19.0% |
| 2023 | 7.1% | -3.5% | 0.6% | -0.1% | N/A | N/A | N/A | N/A | N/A | N/A | N/A | N/A | 3.9% |
Portfolio performance statistics compared to benchmark S&P 500 Total Return index:
| Statistical Metric | Portfolio | S&P 500 TR |
| Annual Return % | 5.97% | 8.84% |
| Exposure % | 99.4% | 100.00% |
| Risk Adjusted Return % | 6.01% | 8.84% |
| Max. drawdown | -38.39% | -55.19% |
| CAR/MaxDD | 0.16 | 0.16 |
| Standard Deviation | 13.54% | 22.64% |
| Sharpe Ratio (3% risk-free) | 0.22 | 0.26 |
Conclusion On The Schultheis Coffeehouse Portfolio
The Schultheis Coffeehouse Portfolio lost out to the S&P 500 TR in terms of returns, but outperformed in terms of risk. The drawdown and standard deviation of the portfolio is slightly lower than that of the S&P 500 TR index, because a significant portion of the portfolio (40%) are bond ETFs.
FAQ:
What is the Schultheis Coffeehouse Portfolio?
The Schultheis Coffeehouse Portfolio is an investment strategy created by Bill Schultheis, aiming to diversify investments across stocks, real estate investment trusts (REITs), and bonds. It can be implemented using a selection of nine Exchange-Traded Funds (ETFs), eliminating the need to pick individual stocks and bonds.
How is the Schultheis Coffeehouse Portfolio backtested?
The portfolio is backtested using a “buy and hold” strategy, rebalancing at the beginning of each year. The backtesting interval spans from 2007 to 2023, and dividends are included in the analysis. The equity curve, underwater curve, and monthly/annual returns are provided to showcase the portfolio’s historical performance.
What are the performance metrics of the Schultheis Coffeehouse Portfolio?
According to backtests over the past 16 years, the portfolio’s performance metrics include a Compound Annual Return (CAR) of 5.97%, Standard Deviation of 13.54%, Maximum Drawdown (MDD) of -38.39%, Sharpe Ratio of 0.22 (with a risk-free rate of 3%), and a CAR/MDD ratio of 0.16.